Melbourne’s 12 month Forecast of Property Market and Developments
Apr 14, 2016 - By Nicholas Scott Property Investments

Melbourne Growth to Ease

The Melbourne property market experienced double-digit price growth in 2015 and has experienced a growth cycle for the past three-and-a-half years, but this main market’s growth is set to cool in 2016.

John Symond, Chairman of Aussie Home Loans, indicated that the ease in growth will be a “welcome cooling off period” for buyers, giving them breathing space and allowing them to take their time choosing the best home or apartment for their lifestyle needs and aspirations.

Melbourne ended the year with 11.8 percent growth, according to Corelogic RP data. Tim Lawless, head of research for the company, believes this number will be replaced with 1 percent growth in 2016.

Shane Oliver, Chief Economist at AMP Capital Markets, predicts that the slowed growth will be a gentle deflation and that Melbourne is on track to see price growth of about 6 percent. He also indicates that while Melbourne’s auction clearance rates have slowed, they haven’t collapsed.

Global credit agency Fitch Ratings predicts that a combination of exposure to U.S. interest rate hikes, prudential regulations, and low affordability will be factors that contribute to slowed growth. Fitch forecasts that Australian property market growth will be around 2 percent in 2016.

More factors, he states, are stretched affordability and the compression of rental yields. There are decreasing levels of affordability in Melbourne, especially because price increases have outpaced wage growth.

Oversupply Implications in Melbourne Property Market

Many property experts have been concerned about an oversupply in the Melbourne property market. The property supply has been higher over the last five years than previously, but the supply has been balanced by higher demand in the form of population growth from the international student market and interstate migration.

While many developers are still operating under the “if we build it, they will come” strategy, experts believe there might be challenges on the horizon. Victoria will see the closure of Ford, Holden, and Toyota in 2016/2017, which will impact the manufacturing industry. A recent study by the University of Adelaide predicted 98,000 jobs will be lost with the biggest impact occurring in Melbourne City where it’s estimated 15,000 will lose jobs.

It’s difficult to predict how jobs will be created to support the growing population, unless the new state government attempts to expand the public sector.

Will New Homes Be Built in 2016?

In 2016, homes will still be built, but they’ll be built at a much slower rate than in 2015. HIA Senior Economist Shane Garrett estimates that new home building will fall by roughly 12 percent, indicating it will be concentrated in new multi-units.

What Will the Market Look Like for Buyers and Sellers?

2016 will likely still be a strong year for sellers who will experience strong conditions in which to sell their homes. The slowing price growth will allow those who want to sell their home and move into a different one to be in a better position to do so.

Buyers will also experience a good year in 2016 as they’ll likely face less competition from investors. Coming out of an aggressive year where buyers had to make a quick decision to secure a home, 2016 will be a year where they’ll be able to take a breather per se, and take more time making a decision.

What Will the Market Look Like for Investors?

The APRA changes to lending criteria will likely result in a slow down for property investors. This slowdown will allow first-time home buyers to come back to the market. Despite the slowdown, Melbourne still has top suburbs with great price growth and rental yield predictions.

While the Melbourne property market morphed into a seller’s market, 2016 will be a healthy market for buyers. While growth won’t be spectacular, the easing off might be just what buyers need.

The slowed growth in Melbourne is just that—a cooling off period—but is certainly not a collapse of the market.

If you have questions about buying or selling property or would like to speak to a qualified real estate professional, contact us.

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